The Stillwater matter was a Statutory Appraisal proceeding under 8 Del. C. § 262 to determine the fair value of the common stock of Stillwater Mining Company (“Stillwater”) as of May 4, 2017, when Sibanye Gold Limited completed its acquisition of Stillwater through a reverse triangular merger. Under the merger agreement, each share of Stillwater common stock was converted into the right to receive $18.00 in cash, subject to each holder’s statutory appraisal rights. Stillwater, a publicly traded Delaware corporation, mined and processed platinum group metals (“PGMs”) from the J-M Reef in Montana, and its common stock price was closely tied to the spot and forward pricing of platinum and palladium.
The petitioners contended that Stillwater’s fair value was $25.91 per share, relying on a discounted cash flow (“DCF”) analysis prepared by their expert, Howard Rosen. Sibanye contended that fair value was $17.63 per share based on a combination of market evidence and valuation analyses, including the merger price, Stillwater’s unaffected trading price (adjusted for the increase in value between the unaffected date and closing), and a DCF analysis. On behalf of Sibanye, Mark Zmijewski—Professor Emeritus at the University of Chicago Booth School of Business—supported by Pavel Nikolov and Erik Himan, addressed three issues: whether the transaction generated quantifiable merger synergies, whether the market for Stillwater’s stock was sufficiently efficient for the unaffected trading price to provide a reliable indicator of value, and the appropriate DCF valuation of the company.
Professor Zmijewski examined the reliability of the unaffected trading price and performed a DCF valuation of Stillwater. On synergies, he analyzed evidence to determine whether the alleged merger synergies were quantifiable and consequently if the merger price provided a reasonable indicator of value without synergy deductions.
The Court found no basis to exclude value from the merger price on account of synergies. The Court further found that the experts disagreed over too many inputs of the DCF model, and that the resulting valuation variations were too large to rely on a DCF method when a market-tested indicator was available. The Court characterized the DCF method as “necessarily a second-best method to derive value.” The court held that the merger price was the most persuasive indicator of fair value and determined that the fair value of Stillwater’s common stock as of the valuation date was $18.00 per share, rejecting the petitioners’ higher DCF valuation, declining to rely on the DCF method, and rejecting any synergy deduction. The Supreme Court of Delaware affirmed this decision on October 12, 2020.